| Assets Acquisitions and Dispositions |
Note 3—Asset Acquisitions and Dispositions All gains or losses on asset dispositions are reported before-tax and are included net in the “Gain on dispositions” line on our consolidated income stat ement. All cash proceeds and payments are included in the “Cash Flows From Investing Activities” section of our consolidated statement of cash flows. During the year, we completed the acquisitions of Concho Resources Inc. (Concho) and of Shell Enterprises LLC’s (Shell) Permian assets. The acquisitions were accounted for as business combinations under FASB Topic ASC 805 using the acquisition method, which requires assets acquired and liabilities assumed to be measured at their acquisition date fair values. Fair value measurements were made for acquired assets and liabilities, and adjustments to those measurements may be made in subsequent periods, up to one year from the acquisition date as we identify new information about facts and circumstances that existed as of the acquisition date to consider. 2021 Acquisition of Concho Resources Inc. In January 2021, we completed our acquisition of Concho, an independent oil and gas exploration and production company with operations across New Mexico and West Texas focused in the Permian Basin. Total consideration for the all-stock transaction was valued at $ 13.1 billion, in which 1.46 shares of ConocoPhillips common stock were exchanged for each outstanding share of Concho common stock. Total Consideration Number of shares of Concho common stock issued and outstanding (in thousands)* 194,243 Number of shares of Concho stock awards outstanding (in thousands)* 1,599 Number of shares exchanged 195,842 1.46 Additional shares of ConocoPhillips common stock issued as consideration (in thousands) 285,929 Average price per share of ConocoPhillips common stock** $ 45.9025 Total Consideration (Millions) $ 13,125 *Outstanding as of January 15, 2021. **Based on the ConocoPhillips average stock price on January 15, 2021. Oil and gas properties were valued using a discounted cash flow approach incorporating market participant and internally generated price assumptions; production profiles; and operating and development cost assumptions. Debt assumed in the acquisition was valued based on observable market prices. The fair values determined for accounts receivable, accounts payable, and most other current assets and current liabilities were equivalent to the carrying value due to their short-term nature. The total consideration of $ 13.1 billion was allocated to the identifiable assets and liabilities based on their fair values as of January 15, 2021. Assets Acquired Millions of Dollars Cash and cash equivalents $ 382 Accounts receivable, net 745 Inventories 45 Prepaid expenses and other current assets 37 Investments and long-term receivables 333 Net properties, plants and equipment 18,923 Other assets 62 $ 20,527 Liabilities Assumed Accounts payable $ 638 Accrued income and other taxes 56 Employee benefit obligations 4 Other accruals 510 Long-term debt 4,696 Asset retirement obligations and accrued environmental costs 310 Deferred income taxes 1,071 Other liabilities and deferred credits 117 Total liabilities assumed $ 7,402 Net assets acquired $ 13,125 With the completion of the Concho transaction, we acquired proved and unproved properties of approximately $ 11.8 6.9 We recognized approximately $ 157 million of transaction-related costs, all of which were expensed in the first quarter of 2021. These non-recurring costs related primarily to fees paid to advisors and the settlement of share- based awards for certain Concho employees based on the terms of the Merger Agreement. In the first quarter of 2021, we commenced a company-wide restructuring program, the scope of which included combining the operations of the two companies as well as other global restructuring activities. We recognized non-recurring restructuring costs mainly for employee severance and related incremental pension benefit costs. The impact from these transaction and restructuring costs to the lines of our consolidated income statement for the year ended December 31, 2021, are below: Millions of Dollars Restructuring Cost Production and operating expenses $ 128 128 Selling, general and administration expenses 135 67 202 Exploration expenses 18 8 26 Taxes other than income taxes 4 2 6 Other expenses - 29 29 $ 157 234 391 On February 8, 2021, we completed a debt exchange offer related to the debt assumed from Concho. As a result of the debt exchange, we recognized an additional income tax related restructuring charge of $ 75 From the acquisition date through December 31, 2021, “Total Revenues and Other Income” and “Net Income (Loss) Attributable to ConocoPhillips” associated with the acquired Concho business were approximately $ 6,571 million and $ 2,330 million, respectively. The results associated with the Concho business for the same period include a before- and after-tax loss of $ 305 233 million, respectively, on the acquired derivative contracts. The before-tax loss is recorded within “Total Revenues and Other Income” on our consolidated income statement. Acquisition of Shell Permian Assets In December 2021, we completed our acquisition of Shell assets in the Permian based Delaware Basin. The accounting close date used for reporting purposes was December 31, 2021. Assets acquired include approximately 225,000 net acres and producing properties located entirely in Texas. Total consideration for the transaction was $ 8.7 Oil and gas properties were valued using a discounted cash flow approach incorporating market participant and internally generated price assumptions , production profiles, and operating and development cost assumptions. The fair values determined for accounts receivable, accounts payable, and most other current assets and current liabilities were equivalent to the carrying value due to their short-term nature. The total consideration of $ 8.7 billion was allocated to the identifiable assets and liabilities based on their fair values at the acquisition date. Assets Acquired Millions of Dollars Accounts receivable, net $ 337 Inventories 20 Net properties, plants and equipment 8,624 Other assets 50 $ 9,031 Liabilities Assumed Accounts payable $ 211 Accrued income and other taxes 6 Other accruals 20 Asset retirement obligations and accrued environmental costs 86 Other liabilities and deferred credits 36 Total liabilities assumed $ 359 Net assets acquired $ 8,672 With the completion of the Shell Permian transaction, we acquired proved and unproved properties of approximately $ 4.2 4.4 billion, respectively. We recognized approximately $ 44 related costs which were expensed during 2021. Supplemental Pro Forma (unaudited) The following tables summarize the unaudited supplemental pro forma financial information fo r the year ended December 31, 2021, and 2020, as if we had completed the acquisitions of Concho and the Shell Permian assets on January 1, 2020. Millions of Dollars Year Ended December 31, 2021 Pro forma Pro forma As reported Shell Combined Total Revenues and Other Income $ 48,349 3,220 51,569 Income (loss) before income taxes 12,712 1,201 13,913 Net Income (Loss) attributable to ConocoPhillips 8,079 920 8,999 Earnings per share: Basic net loss $ 6.09 6.78 Diluted net loss 6.07 6.76 Millions of Dollars Year Ended December 31, 2020 Pro forma Pro forma Pro forma As reported Concho Shell Combined Total Revenues and Other Income $ 19,256 3,762 1,685 24,703 Income (loss) before income taxes (3,140) 787 (247) (2,600) Net Income (Loss) attributable to ConocoPhillips (2,701) 498 (189) (2,392) Earnings per share: Basic net loss $ (2.51) (1.75) Diluted net loss (2.51) (1.75) The unaudited supplemental pro forma financial information is presented for illustration purposes only and is not necessarily indicative of the operating results that would have occurred had the transactions been completed on January 1, 2020, nor is it necessarily indicative of future operating results of the combined entity. The unaudited pro forma financial information for the twelve-month period ending December 31, 2020 is a result of combining the consolidated income statement of ConocoPhillips with the results of Concho and the assets acquired from Shell. The pro forma results do not include transaction-related costs, nor any cost savings anticipated as a result of the transactions. The pro forma results include adjustments from Concho’s historical results to reverse impairment expense of $ 10.5 1.9 billion related to oil and gas properties and goodwill, respectively. Other adjustments made relate primarily to DD&A, which is based on the unit-of-production method, resulting from the purchase price allocated to properties, plants and equipment. We believe the estimates and assumptions are reasonable, and the relative effects of the transaction are properly reflected. Announced Acquisitions In December 2021, we announced that we have notified Origin Energy that we are exercising our preemption right to purchase an additional 10 percent shareholding interest in APLNG from Origin Energy for $ 1.645 will be funded from cash on the balance sheet, before customary adjustments. The effective date of the transaction will be July 1, 2020 with closing anticipated to occur in the first quarter of 2022 subject to Australian government approval. Assets Sold In 2020, we completed the sale of our Australia -West asset and operations. The sales agreement entitled us to a $ 200 million payment upon a final investment decision (FID) of the Barossa development project. On March 30, 2021, FID was announced and as such, we recognized a $ 200 million gain on disposition in the first quarter of 2021. The purchaser failed to pay the FID bonus when due. We have commenced an arbitration proceeding against the purchaser to enforce our contractual right to the $ 200 million, plus interest accruing from the due date. Results of operations related to this transaction are reflected in our Asia Pacific segment. In the second half of 2021, we sold our interests in certain noncore assets in our Lower 48 segment for approximately $ 250 million after customary adjustments, recognizing a before-tax gain on sale of approximately $ 58 million. We also completed the sale of our noncore exploration interests in Argentina, recognizing a before- tax loss on disposition of $ 179 million. Results of operations for Argentina were reported in our Other In 2021, we recorded contingent payments of $ 369 million relating to previous dispositions. The contingent payments are recorded as gain on disposition on our consolidated income statement and are reflected within our Canada and Lower 48 segments. In our Canada segment, the contingent payment, calculated and paid on a quarterly basis, is $6 million CAD for every $1 CAD by which the WCS quarterly average crude price exceeds $52 CAD per barrel . The term for contingent payments in our Canada segment ends on May 16, 2022. In our Lower 48 segment, the contingent payment, paid on an annual basis, is calculated monthly at $7 million per month in which the U.S. Henry Hub price is at or above $3.20 per MMBTU . The term for contingent payments in our Lower 48 segment goes through 2023. No contingent payments were recorded in 2020. Planned Dispositions In December 2021, we entered into an agreement to sell two subsidiaries holding our Indonesia assets and operations to MedcoEnergi for $ 1.355 billion, before customary adjustments, with an effective date of January 1, 2021. The subsidiaries hold our 54 percent interest in the Indonesia Corridor Block Production Sharing Contract (PSC) and a 35 percent shareholding interest in the Transasia Pipeline Company. The net carrying value is approximately $ 0.4 billion, which consists primarily of PP&E. The assets met the held for sale criteria in the fourth quarter, and as of December 31, 2021, we have reclassified $ 0.3 billion of PP&E to “Prepaid expenses and other current assets” and $ 0.1 billion of noncurrent ARO to “Other accruals” on our consolidated balance sheet. The before-tax earnings associated with our Indonesia subsidiaries were $ 604 394 512 the years ended December 31, 2021, 2020 and 2019, respectively . This transaction is expected to close in early 2022, subject to regulatory approvals and other specific conditions precedent. Results of operations for the subsidiaries to be sold are reported within our Asia Pacific segment. In January 2022, we entered into an agreement to sell our interests in certain noncore assets in the Lower 48 segment for $ 440 million, before customary adjustments. This transaction is expected to close in the second quarter of 2022. 2020 Asset Acquisition In August 2020, we completed the acquisition of additional Montney acreage in Canada from Kelt Exploration Ltd. for $ 382 million after customary adjustments, plus the assumption of $ 31 million in financing obligations associated with partially owned infrastructure. This acquisition consisted primarily of undeveloped properties and included 140,000 net acres in the liquids-rich Inga Fireweed asset Montney zone, which is directly adjacent to our existing Montney position. The transaction increased our Montney acreage position to approximately 295,000 acres with a 100 percent working interest. This agreement was accounted for as an asset acquisition resulting in the recognition of $ 490 77 million of ARO and accrued environmental costs; and $ 31 financing obligations recorded primarily to long-term debt. Results of operations for the Montney asset are reported in our Canada segment. Assets Sold In February 2020, we sold our Waddell Ranch interests in the Permian Basin for $ 184 No gain or loss was recognized on the sale. Results of operations for the Waddell Ranch interests sold were reported in our Lower 48 segment. In March 2020, we completed the sale of our Niobrara interests for approximately $ 359 adjustments and recognized a before-tax loss on disposition of $ 38 million. At the time of disposition, our interest in Niobrara had a net carrying value of $ 397 million, consisting primarily of $ 433 34 ARO. The before-tax losses associated with our interests in Niobrara, including the loss on disposition noted above and an impairment of $ 386 million recorded when we signed an agreement to sell our interests in the fourth quarter of 2019, were $ 25 372 million for the years ended December 31, 2020 and 2019, respectively. Results of operations for the Niobrara interests sold were reported in our Lower 48 segment. In May 2020, we completed the divestiture of our subsidiaries that held our Australia -West assets and operations, and based on an effective date of January 1, 2019, we received proceeds of $ 765 million. We recognized a before- tax gain of $ 587 million related to this transaction in 2020. At the time of disposition, the net carrying value of the subsidiaries sold was approximately $ 0.2 0.5 billion of cash. The net carrying value consisted primarily of $ 1.3 0.1 billion of other current assets offset by $ 0.7 0.3 deferred tax liabilities, and $ 0.2 billion of other liabilities. The before-tax earnings associated with the subsidiaries sold, including the gain on disposition noted above, were $ 851 372 million for the years ended December 31, 2020 and 2019, respectively. Production from the beginning of the year through the disposition date in May 2020 averaged 43 MBOED. The sales agreement entitled us to an additional $ 200 the Barossa development project. Results of operations for the subsidiaries sold were reported in our Asia Pacific segment. 2019 Assets Sold In January 2019, we entered into agreements to sell our 12.4 percent ownership interests in the Golden Pass LNG Terminal and Golden Pass Pipeline. We also entered into agreements to amend our contractual obligations for retaining use of the facilities. As a result of entering into these agreements, we recorded a before -tax impairment of $ 60 million in the first quarter of 2019 which is included in the “Equity in earnings of affiliates” line on our consolidated income statement. We completed the sale in the second quarter of 2019. Results of operations for these assets were reported in our Lower 48 segment. In April 2019, we entered into an agreement to sell two ConocoPhillips U.K. subsidiaries to Chrysaor E&P Limited for $ 2.675 billion plus interest and customary adjustments, with an effective date of January 1, 2018. On September 30, 2019, we completed the sale for proceeds of $ 2.2 billion and recognized a $ 1.7 and $ 2.1 billion after-tax gain associated with this transaction in 2019. Together the subsidiaries sold indirectly held our exploration and production assets in the U.K. At the time of disposition, the net carrying value was approximately $ 0.5 billion, consisting primarily of $ 1.6 0.5 billion of cumulative foreign currency translation adjustments, and $ 0.3 billion of deferred tax assets, offset by $ 1.8 billion of ARO and negative $ 0.1 billion of working capital. The before-tax earnings associated with the subsidiaries sold, including the gain on dispositions noted above, was $ 2.1 billion for the year ended December 31, 2019. Results of operations for the U.K. were reported within our Europe, Middle East and North Africa segment. In the second quarter of 2019, we recognized an after-tax gain of $ 52 million upon the closing of the sale of our 30 percent interest in the Greater Sunrise Fields to the government of Timor-Leste for $ 350 Sunrise Fields were included in our Asia Pacific segment. In the fourth quarter of 2019, we sold our interests in the Magnolia field and platform for net proceeds of $ 16 million and recognized a before-tax gain of $ 82 million. At the time of sale, the net carrying value consisted of $ 4 million of PP&E offset by $ 70 million of ARO. The Magnolia results of operations were reported within our Lower 48 segment. |